What Happens if a Debtor Dies After Filing for Bankruptcy in California?

Bankruptcy is a difficult process for many to understand. It can be complicated to figure out what happens if the person filing passes away. Though it may be difficult to understand, it is not entirely impossible. Here, we will take a closer look at what happens to debt and bankruptcy after death.

How Death and Bankruptcy Work in California?

Generally, when a bankruptcy agreement is reached and is agreed upon by the court, it applies only to the person that filed and not to anyone that might be left behind when they pass. When a debtor dies in California after they have come to an agreement with the court on a bankruptcy settlement, the bankruptcy is halted, and the family is given time to make one of two choices.

They can either continue the repayment before the death, or they can petition the court to change or entirely dismiss the debt and the bankruptcy so that the estate can be settled and closed entirely.

What Happens After Death During a Chapter 7 Bankruptcy?

If the debtor dies during bankruptcy or directly after a chapter 7 bankruptcy is filed, the process will continue despite the death of the person filing. Chapter 7 requires the liquidation of a debtor’s assets with the money that comes from that liquidation being used to pay off the debt. A trustee from the bank is appointed at the beginning of the process to help keep it rolling and to make sure that the assets are sold and the money does get to the creditors.

If someone passes away during their proceeding or before the debt is paid, the appointed trustee by the bank will continue paying off the debts with the assets sale’s money. After all the assets are sold or the debt is all paid off, the settlement of the estate continues with whatever is left from the liquidation.

What Happens After Death During a Chapter 13 Bankruptcy?

Chapter 7 and Chapter 13 are a bit different. With chapter 13 there is often a payment plan that has been settled upon by the debtor and the court. They are expected to make payments over a three or five year period. It allows the debtor to keep certain assets and then pay off debts at their own pace without giving up everything they own.

It also means that once the debtor passes away and the payments stop, the case can be dismissed. The difficulty with this comes that once the bankruptcy is dismissed, creditors can come after the estate and get their part out of the money. When someone is part of a chapter 13 bankruptcy, and they pass away, the family can do one of two things, they can continue the payments and pay off the rest of the debt so that they can then keep the rest of the estate, or they can petition the court to dismiss the bankruptcy.

As mentioned, if they continue to pay, they can then take the rest of the estate and divide it among people that are left behind. If the family petitions the court to have the bankruptcy dismissed, the estate can then go into probate, and the creditors can come after the estate to get their part of the debt all at once. Those left behind can divide up what is left, if there is anything, and proceed after that.

In some rare cases, you can request a hardship discharge. It means the person that passes either does not have enough left in their estate to pay the debt, the family cannot continue the payments, or repayment is simply not possible. In these cases, the court can decide to entirely dismiss the debt and any debt that might be left after the person has passed away.

What Happens if a Spouse Dies During a Bankruptcy Case?

In most cases, if there is someone left that can be part of the proceeding, the bankruptcy is going to continue no matter what. If one spouse passes away during a bankruptcy proceeding, the proceeding will continue with the assets of the deceased spouse and the remaining living spouse. It means that the person left behind will continue with the bankruptcy, and the proceedings will go ahead as planned, the deceased spouse will simply be taken off the paperwork.

Should Heirs Continue Chapter 7 or Chapter 13 Bankruptcy Case after the Debtor Dies?

The simple answer is yes. In most cases, unless you get an attorney and spend a great deal of time and money to get a bankruptcy or to get debts dismissed, you still have to pay the debt. Bankruptcy is a legal and binding contract between the court and the person that filed for bankruptcy. It means that even after death, it is still binding, and the people left behind are still going to be liable for repayment.

It is always a good idea to speak with an attorney. They will help and see what your options are in terms of repayment, and in terms of getting rid of debt that might be related to the estate of the person that has passed away.

You can always speak with the court about the potential to have cases dismissed and the overall cost dismissed as well. Your attorney may be able to give you options in terms of having a bankruptcy and the overall debts that a person owed dismissed upon their passing. An attorney will always be able to offer you the most accurate information and the best options possible so that you can make an educated decision.